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Stock Exchange: Do You Trade The 50-Day Moving Average?

Jeff Miller profile picture
Jeff Miller


  • The S&P 500 and Nasdaq had been skipping along the top of their 50-Day moving averages for the last year, until the uptick in volatility started in February.
  • The 50-day moving average is used by so many that it often serves as a magnet, then support/resistance. But when something sends it through, it hits a lot of stops.
  • Wednesday of this week, the market was down moderately, and then collapsed around the 50-day moving average.
  • Our regular participants offer specific trading ideas reflecting contrasting styles.

The Stock Exchange is all about trading. Each week, we do the following:

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Our previous Stock Exchange asked the question: Are You Out Of Your Comfort Zone? We reviewed how traders must adapt to changing market conditions rather than sticking to old trading methods that were once profitable but are now destructive. If you missed it, a glance at your news feed will show that the key points remain relevant.

This Week: Do You Trade the 50-Day Moving Average?

The following chart shows the S&P 500 basically skipped along the top of its 50-day moving average for most of the last year.

And the same is largely true for the Nasdaq.

This basic technical trading indicator (50-day moving average) is used by so many market participants that it often serves as a magnet, and then support or resistance. However, when something sends the market through this level, many stops are often triggered, thereby increasing the market move. For example, here is a look at the S&P 500 over the last week.

The market was down moderately on Wednesday of this week (Feb. 28th), but then collapsed around the 50-day moving average. Regarding such market moves, our models do not anticipate down moves, but do exit in time to avoid the big losses. According to an article from Morningstar earlier this week (Will Active Stock Funds Save Your Bacon in a Downturn?), active management has most of its advantages in

This article was written by

Jeff Miller profile picture
Seeking Alpha mourns the passing of Jeff Miller, on May 7, 2021. During his time at Seeking Alpha, Jeff attracted a following of close to 40,000 readers and published more than 1,500 articles. He was a portfolio manager at Incline Investment Advisors, LLC. Jeff also was President of NewArc Investments, Inc., and served as a university professor.....................................................................................................................................Jeff is Portfolio Manager for Incline Investment Advisors, LLC.,manager of both individual and institutional investments. A registered investment advisor, he was formerly President of NewArc Investments, Inc. Jeff is a former college professor with a hands-on, real world attitude. His quantitative modeling helped inform state and local officials in Wisconsin for more than a decade. A Public Policy analyst, he taught advanced research methods at the University of Wisconsin, and analyzed many issues related to state tax policy. Jeff began in the financial business as Research Director for a trading firm at the Chicago Board Options Exchange. He investigated anomalies in the standard option pricing models, taught classes for beginning options traders, and developed new forecasting techniques. In 1991 he established a general research consultancy, working with professional traders at all of the Chicago financial exchanges. In 1998 he started NewArc Investments, Inc. Jeff has a commitment to the specific needs of individual investors. It is not a one-size-fits all approach, but one that emphasizes the unique circumstances of each client. Jeff also serves on the board of a small technology company. He occasionally serves as an expert witness in legal cases involving financial markets and hedging.

Analyst’s Disclosure: I am/we are long CTL, W. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (39)

4paisa profile picture
good article. Thx
Ian Farbrother profile picture
Personally, I mostly focus on longer term trends - and by default use the 22-week, 50-week, 100-week, and 200-week mas. However, I do use the daily mas for shorter-term trading and for finding good entry points.

I have also found, however, that different stocks/ETFs tend to have different mas as support - and even the same one can have different mas in different periods. For example, the S&P 500 tended to find support a bit under the 50-week during 2005-2006, but during 2013-14, and also in 2017 found support around the 22-week. Note that the 22-week is close to, but a bit lower than, the 100-day - and the 50-week is a bit lower than the 200-day.

So it is all variable - and I agree with the people here who have commented about the obsession with the 50-day and 200-day. Has never made sense to me !!!

Cheers, Ian
tradebr2010 profile picture
Like Jesse Livermore always said "nothing changed in Wall Street". Human behavior doesn't change. HFT is faster but still programmed by humans, and those funds having their behinds handed to them lately!
I'm not that convinced that HFT doesn't have an advantage. Some have their physicists (such as Renaissance) model and predict on a very short time frame. Just as in physics, phenomena that typically do not yield to analysis on a longer time frame can be accurately modeled on a short enough time duration.
they don't need a smart or better indicator advantage, that's why hft should not be legal. It's just speed and spread they master. It's not really about winning more trades once you're at 53-54%, it's about more trades to speed up the compounding/exponential factors. In other words, it's cheating in plain site. The rich get richer.
AgileDave profile picture
What frequency should be legal?
Z-alpha Trading System profile picture
We view the traditional moving averages as self-fulfilling prophesies after years of testing real-time in the 1980's. If everyone is using the same data set there cannot be differential advantages. However, the HFT platforms and the floor "locals" especially love these lines for obvious reasons. Clacker Board Quote: Every ship at the bottom of the ocean has a set of charts.
AgileDave profile picture
Ships at the bottom of the ocean also have the bones of people who weren't very good at reading those charts.
tradebr2010 profile picture
I think it depends on investment objectives and time frame. My daily set-up for trading only is the 5/10ma, BB, and Fib levels. If I'm learning a new stock, I'd go as far as multiyear chart and 200/100/50ma. For a yearly and less look I'd use the 100/60/50/40/20ma. I do like Fib levels for support too.
I can't imagine these moving averages tell us much as 90% of the trades are made by robots who trade for pennies. It's the gospel preached to us that the 50, 100 and 200 moving averages
rule. All you need to look at is the regression line. Everything returns to the mean sooner or later. I hear some people invest based on moon phases. But if you are comfortable trading moving averages then go for it.
So, what regression line do you implement. Do you start the line from a 20 year low, 10 year low, 5 year low, 1 year low, by the month, week, or day? They will all have different mean reversions.
AgileDave profile picture
The machines probably track 50 second moving averages.
Bill Keyes profile picture
Speaking only of mathematics, there is no real difference between the use of 50-day and 200-day averages versus the use of 65-day and 240-day averages. Both use a mid-term and long-term average. The relevance for using 10-day, 50-day, and 200-day averages is that those are the standards and so most investors and especially investment software looks at them.

For example, If you see a stock price descend the the 50-day average and then rise, known as bouncing off the 50-day average, this is considered a positive sign and you can expect to see institutional buying lifting the stock higher. If you see it reach and then fall below the 50-day average, known as breaking through the 50-day average, this is considered a bad sign and you can expect to see institutional selling driving it down further, and possibly short selling as well. What is important in momentum plays is what the other investors are looking at and how they will react. This is why you should look at the standard averages.
spitblu profile picture
"What is important in momentum plays is what the other investors are looking at and how they will react."

Better than gold.
Nick Mackintosh profile picture
Why are the 50 day and 200 day the standards? What is the relevance? I bet you have no idea. Thats whats so funny, people are using them due to being the most popular without questioning if there is a reason for them figures.
Nick, share some wisdom please sir. I just positioned with Jan 2019 Ups calls. I plan to exit around $115. My more risky play is xlu with a trailing stop. This position was a decision between tlt long or xlu long. I utilize Bollinger bands and candles but nothing fancy. I've learned that all traders lose plenty of trades, it's more about mindset,rules, positioning, cutting loses,etc. just my humble opinion
Clauser1960 profile picture
I would be very glad if someone could explain why the 50 and 200 day moving average are more relevant than the 65, 85 or 240, etc. I am really curious.
I prefer to look at the direction and overlap of multiple sm averages and the deviation of price, particularly focusing on social metrics, especially overreactions.

Last week I had a Scottrade account and picked up MIC for 38 something and put it on a limit sell for 44 because I would have to learn a new brokerage (still haven't got there with it yet), which was filled this week very close to peak of 44.18.

I also bought SRCL the same day but have longer plans for it. This week I am still learning how to navigate TD Ameritrade but took a quick percent off of VSTO today after REI announced it was bullying them for not joining the bandwagon after this latest shooting.

One thing I am liking about TD so far is hourly charts with volume behavior by the minute in numerical form instead of just a bar with an average comparison, never had that before, very useful in seeing money flow and support/ resistance for my eyes versus the scale of a daily chart
1113, I agree with the volume behavior, don't especially like to have to retrain all over again, this old dog is slowly learning the new tricks!
copy that, my workaround so far is back to small swings on a quarterly scale instead of weekly or intraday. Much to learn about the new platform, much to forget about the old one
Nick Mackintosh profile picture
People that use the 50 and 200 MA are laughed at by the professionals and rightly so, they probably have no idea why they use them either.

None of the MA's mentioned in the comments are correct thus far...
My observation of the good old days was that the algos knew people traded based on the 50 and 200 day mvg. People would set their stop losses at those points, the algos would push it down just past those points, triggering the selling and then they would buy back.
bbro profile picture
My preferred weapon of choice is Stochastics.....whether it is measuring price or breadth...
RettW profile picture

Most people would think that the 50 day SMA is a nice round number. More rational people would think that the 13 day EMA/48 day EMA is a more empirical, proven number, according to the quantitative research at the link above.
Peace Grunt USMC profile picture
I use bollinger bands with the 18 day MA as per Ira Epstein.
I do look at the 50, 100, and 200 as well. After a drop I look at the 5 day. Two days above the 5 day after a recent low is always a good sign.
The SP bounced off the 200 day mav with the correction, better watch that too. Looks like we may revisit.
S&P came close to 100dma on Friday but bounced up smartly from it.
spitblu profile picture
The 50ma has been for me one of a number of important tracking points for things tradeable. But, if I also don't try to do as BH as says, "That dip is because ..." --that is, if I don't try to understand the pattern break, I'm also not doing half of my homework.... Btw, I hate to hang my shares out there to be picked off easily. I like this article series because it works a hybrid view for buying and selling. It's the way to go, in my experience.
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